M&S attacks three year VAT cap rule

Customs & Excise came under fire last week from Marks & Spencer for capping backdated VAT payments to three years, in a ground-breaking tribunal that could blow a large hole in Chancellor Brown’s Budget.

The High Street retailer attacked Customs for using the three-year rule to prevent companies from clawing back VAT owed by the agency.

If the tribunal rules in favour of M&S it could open the floodgates to other claimants, angry that VAT overpayments more than three years ago are kept in Treasury coffers.

Despite representations from industry groups and accountants, Customs had maintained the rule was needed to limit the liability of the Exchequer.

At the time the rule was approved, Customs was fighting a series of cases attempting to claw back alleged VAT overpayments.

The dispute follows a battle between Customs and Marks & Spencer last year which ended with a tribunal decision limiting the recovery to 10% of VAT on M&S teacakes, which had been mistakenly standard-rated.

M&S executives were angered when told they had not only lost 90% of their claim, but the payback covering 21 years would be cut to three years under the capping rules.

The normally reticent blue-chip company immediately lodged a claim against Customs which was heard by tribunal president Stephen Oliver QC last week.

M&S said the capping scheme was unfair because it discriminated between payment traders and repayment traders.

The company, which was represented by Deloitte & Touche, said in the tribunal it was unfair the rule is not evenly applied across all domestic and EC taxes.

A spokesman for Customs denied the capping rule was selective. ‘It’s true it does not apply to direct taxes, but it does apply across the board on all indirect taxes and we argue that exactly the same line is pursued across domestic and EU taxes.’

He said Customs would appeal ‘in the strongest possible terms’ if the ruling went in favour of M&S. ‘If we lose, we would take it straight on to the High Court’.

Deloitte & Touche was unavailable for comment.

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